Addressing Azure Cost Management Challenges in Hybrid Cloud Environments

Hybrid cloud is a powerful strategy for enterprises that want to balance the advantages of on-prem & cloud infrastructure. Learn more today!

Carolyn Norton

Director of Cloud

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    Hybrid cloud is a popular strategy for enterprises that want to leverage the benefits of both on-premises and cloud infrastructure. Hybrid and multi-cloud environments are commonplace for modern businesses, and provide greater flexibility, resilience, compliance capabilities, and opportunities for optimization and innovation. According to a report published by Enterprise Strategy Group in 2023, many organizations now use multiple on-premises data centers, co-location providers, and Platform as a Service (PaaS)/ Infrastructure as a Service (IaaS) providers to power their IT infrastructure. A staggering 85% of organizations use two or more IaaS providers, making the need for cloud synchronization and effective management tools stronger than ever. 

    Managing costs in a hybrid cloud environment can be a complex and daunting task. With different pricing models, cost centers, and allocation methods, IT finance managers and CTOs need to have a clear and comprehensive view of their hybrid cloud expenses and optimize them for efficiency and agility. 

    What causes cost overruns in a hybrid cloud environment? 

    Incomplete planning for actual costs seems to be at the core of the challenge organizations face. Typically, cost overruns occur for the following reasons: 

    • Capacity planning doesn’t allow for uncertainty 
    • Cloud infrastructure utilization is lower than planned 
    • Development or testing needs beyond production were not anticipated 
    • Smaller costs (data transfer, load balancing, other services) were not accounted for 
    • Resources are not being de-provisioned when unused 
    • Higher cost services are being used more than originally planned 

    Key Cost Challenges in Microsoft Azure Hybrid Cloud 

    Some of the main cost-related challenges that Azure hybrid cloud users face are: 

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    • Variable pricing models: Microsoft Azure, like many cloud providers, offer a variety of pricing options, such as pay-as-you-go, reserved instances, spot instances, and hybrid benefits. These options can help users save money and optimize their cloud usage, but they also introduce complexity and variability in their cloud bills. Users need to understand the trade-offs and implications of each pricing model and choose the best one for their workloads and budget. 
    • Decentralized cost centers: Hybrid cloud environments often involve multiple teams, departments, and business units, each with their own cloud accounts and resources. This can lead to a lack of visibility and accountability for cloud costs and challenges in allocating and tracking expenses across the organization. Users need to implement a centralized and consistent cost management framework that can provide granular and accurate insights into their hybrid cloud spending and enable them to enforce policies and governance.
    • Difficulty of allocating costs in a shared environment: Hybrid cloud users often share resources, such as networks, storage, and databases, between their on-premises and cloud infrastructure. This can make it hard to assign and apportion costs to specific projects, applications, or business units, especially when the usage patterns and demand fluctuate over time. Users need to have a reliable and flexible method of tagging and grouping their hybrid cloud resources and applying cost allocation rules that reflect their business logic and objectives. 

    Three ways to Control Costs in Hybrid Cloud 

    If you run a hybrid cloud, chances are you use both public and private clouds, or possibly multiple public clouds. How can you manage the costs associated with these models? Below are three ways to do so: 

    1. Optimize your workload. To do this, your solution will need to be carefully and properly architected for you. This will require some discussions and input from your team about the best way to run your applications and their components. Where will you place your testing/QA servers? What data must adhere to compliance requirements, and where should that live? Which applications are low latency? How many copies of data do you need? Determining where your applications run best will maximize efficiency and ensure you aren’t running extra compute or storage resources you don’t truly need.
    2. Set up monthly budgets and get alerts when you’re close to approaching your limit or have exceeded it. If you use Microsoft Azure, you can get these customized alerts to better manage your spend. You can also take advantage of a managed cloud provider, who can monitor your cloud environment for you and let you know when you’re close to your budget.
    3. Server tagging is another way to manage costs within your cloud environment. You can tag servers by department, cost center, environment, etc. This is useful because you can easily see who is using what resources when, or, better yet, who isn’t using their allotted resources. Redistribute or eliminate these as necessary. Both Microsoft and AWS offer server tagging capabilities. 

      Self-service tools can help 

      To solve the challenge of cost management in hybrid environments, businesses need easy-to-use, self-service tools that manage costs and application deployment across all public and private cloud environments. These tools should include features that not only help IT better manage the entire hybrid IT environment, but also make it easier for developers to get the resources they need to get their work done. Additionally, these tools should provide analytics that help the business better control costs and utilization. 

      Key elements of cloud management tools should include the following capabilities: 

      • Self-service infrastructure that empowers a developer’s environment 
      • Structure for tagging resources upon provisioning (with reporting capabilities) 
      • API-driven, services-based SaaS platform that allows users to add existing cloud infrastructures and options for application developer use 
      • Insights dashboard for visibility into cloud spend and utilization 
      • Features that build cost visibility for budgeting, control, and optimization by the project owners (including drill down capabilities by cloud, project, and users) 
      • Capacity and/or spend limits configurable per project (to avoid surprises) 
      • SaaS-based platform to minimize setup and keep operational burdens low 

      How Azure Can Help with Cost Management in Hybrid Cloud 

      Azure offers a range of tools and features that can help users overcome the cost challenges of hybrid cloud and achieve transparency and optimization of their hybrid cloud expenses. Some of these are: 

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      • Azure Cost Management: This is a native Azure service that provides users with a comprehensive and granular view of their Azure and AWS cloud costs, as well as tools to analyze, monitor, and optimize their cloud spending. Users can create budgets, alerts, and recommendations to track and control their cloud costs, as well as use reports and dashboards to visualize and compare their cloud spending across different dimensions, such as resource groups, subscriptions, services, and tags.
      • Azure Hybrid Benefit: This is a feature that allows users to save money on their Azure virtual machines and SQL Server instances by using their existing on-premises licenses. Users can apply their Windows Server and SQL Server licenses to their Azure VMs and pay only for the base compute rate, reducing their cloud costs by up to 40%. Users can also combine Azure Hybrid Benefit with Azure Reserved Instances to save even more on their long-term cloud commitments.
      • Azure Arc: This is a service that enables users to extend Azure management and governance capabilities to their on-premises and other cloud resources, such as servers, Kubernetes clusters, and databases. Users can use Azure Arc to apply consistent policies, security, and compliance across their hybrid cloud environment, as well as to monitor and optimize the performance and costs of their hybrid cloud resources. Users can also use Azure Arc to deploy and run Azure services, such as Azure SQL Managed Instance and Azure Kubernetes Service, on their on-premises or other cloud infrastructure, benefiting from the same pricing, billing, and support as Azure. 


      Hybrid cloud is a powerful and flexible strategy for enterprises that want to balance the advantages of on-premises and cloud infrastructure. However, it also poses significant cost management challenges that require careful planning and execution. Azure can help users overcome these challenges and achieve cost efficiency and operational agility in their hybrid cloud environment, by providing a comprehensive and granular view of hybrid cloud costs, as well as tools and features to optimize and control hybrid cloud spending. Velosio is here to help with cost management. Contact us to learn more. 

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      Carolyn Norton

      Director of Cloud

      Follow Me: